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Micron Technology, a manufacturer and marketer of semiconductor devices, is set to announce its Q3 2012 result this Wednesday. Having witnessed a phenomenal 2010 with 81% y-o-y growth, the company lost momentum with a 7% decline in 2011.

Seasonal factors combined with supply chain disruptions due to floods in Thailand and the overall economic instability continued to take a toll on the company as it registered a sequential decline of about 4% in its last quarter earnings.

However, as the growing consolidation in the dynamic random access memory market brings about a correction in market dynamics and the exponential growth in tablets and smartphones drive up NAND sales, we expect the company to register growth in the current year. Here, we list certain factors that might impact its current as well as remaining quarter earnings for 2012.

Micron’s partnership with Intel on NAND flash is an important part of their overall business. Last quarter, the company announced reaching definite agreements with Intel to restructure this partnership. As part of the overall agreement, Micron agreed to purchase Intel’s 18% interest in the IM Flash operation in Singapore and purchase from the IM flash entity its production assets in the micron fab in Virginia. Micron will sell a portion of the total capacity of 30,000 wafers per month back to Intel under a for-profit take-or-pay supply agreement. This additional profit capacity can have a positive impact on margins, going forward.

However, the termination of the associated lease of Micron fab in Virginia will lead to a loss of approximately $20 million this quarter. [1] Since the timing of the closing of the transaction with Intel is still uncertain, we expect to see no significant change in Micron’s IM flash sales to Intel this quarter.

Revival In The Global DRAM Industry

Weak demand last year was one of the primary reasons for the drop in overall revenues, but the major problem was excess capacity in the market that has persisted for quite some time. However, the exit of Elpida, which held a 17% market share, is a welcome change for the existing players as it will likely shift the market from a state of persistent oversupply to a much needed stability in market dynamics.

According to research firm IHS iSuppli, the global DRAM market will partially reverse the massive losses incurred in 2011. It predicts the global DRAM revenue to increase to $30.6 billion in 2012, which is close to our estimate of $33.4 billion. [2] We estimate the global DRAM market to reach around $380 billion by the end of our forecast period.

Consumers are buying tablets and smartphones in increasing numbers, driving up the use of NAND flash memory for such devices. According to IHS iSuppli, the NAND flash growth from tablets alone would be 12.3 billion GB in 2014, up from 476.8 million GB in 2010.

Compared to the slower growth rate for PC DRAM, we expect the market for mobile DRAM to register huge growth for the period under review. iSuppli predicts mobile DRAM shipments to reach 5 billion Gb in 2015, and go up by almost four times by 2015. [3]

We believe the exponential growth in smartphones, tablets and SSDs will continue to drive demand for NAND and Mobile DRAM; and consequently expect Micron to register growth in these segments in the current quarter as well.

Micron is the forerunner for acquiring Elpida, which filed for bankruptcy in February 2012. If the acquisition successfully goes through, Micron could see a substantial gain in its share in the DRAM market. With the possible acquisition of Elpida, revival in the DRAM market and the exponential growth in mobile devices driving use of NAND flash, we feel that Micron is set to see a double digit growth this year.

DRAM manufacturing is highly capital intensive, and as the technology nodes shrink, the costs of setting up a fabrication unit keep getting higher and higher. The business is such that there is no customer loyalty or brand recognition and hence it is tough for smaller players to survive. Many manufacturers have had to shut down or sell out due to economic downturn as well. This means that existing players would increase their market share.

Micron also has acquired stakes in several silicon wafer manufacturers, which would lead to an increase in its own production and increase its market share.